How to Read a Profit & Loss Statement (Without the Headache):
If you’re building a business, understanding your Profit & Loss (P&L) statement isn’t optional—it’s essential. This document tells the story of your business’s financial health: what’s coming in, what’s going out, and whether you’re actually making money. Here’s how to read it like a boss.
What Is a Profit & Loss Statement?
A P&L statement (also called an income statement) shows your revenue, expenses, and net profit over a specific period—usually monthly, quarterly, or annually. It’s your financial report card.
Key Sections to Know
1. Revenue (aka Sales or Income)
This is the total money your business earned before expenses. Look for line items like:
• Product sales
• Service income
• Grants or other income streams
2. Cost of Goods Sold (COGS)
These are direct costs tied to delivering your product or service. Examples:
• Materials
• Labor
• Packaging
3. Gross Profit
This is Revenue minus COGS. It shows how much you made before overhead.
Formula: Gross Profit = Revenue – COGS
4. Operating Expenses
These are your day-to-day business costs. Common categories include:
These are your day-to-day business costs. Common categories include:
• Rent
• Marketing
• Utilities
• Software subscriptions
• Payroll (if not included in COGS)
5. Net Profit (or Net Income)
This is the bottom line—what’s left after all expenses.
Formula: Net Profit = Gross Profit – Operating Expenses
What to Look For
• Profit Trends: Are profits growing month over month? If not, why?
• Expense Spikes: Did marketing or payroll suddenly jump? Investigate.
• Margins: Is your gross profit margin healthy? (Aim for 30%+ depending on your industry.)
• Break-even Point: Are you covering your costs or operating at a loss?
Quick Tips for Founders
• Review your P&L monthly—don’t wait until tax season.
• Use it to guide decisions: hiring, pricing, marketing spend.
• Pair it with a cash flow statement for the full picture.
• If something looks off, ask your bookkeeper or accountant to walk you through it.
Final Word
Your P&L isn’t just paperwork—it’s power. When you know your numbers, you make better moves. Whether you’re pitching to investors, applying for grants, or just trying to stay afloat, this statement helps you lead with clarity and confidence.
Need help breaking down your own P&L? Tomorrow’s Gains offers financial walkthroughs tailored to early-stage founders. Let’s get your numbers working for you.